Question

The main cause of depreciation is wear and tear caused by its usage.

• A. True
• B. False

Answer 1

The correct option is A True

Following are the main causes of depreciation :

1. Physical wear and tear - When the fixed assets are put to use, the value of such assets may decrease. Such a decrease in the value of assets is said to be due to physical wear and tear.

2. Within the passage of time - When the assets are exposed to the forces of nature like weather, winds, rains, etc. the value of such assets may decrease even if they are not put to any use.

3. Changes in the economic environment - The value of an asset may decrease due to a decrease in the demand of the asset. The demand for the asset may decrease due to technological changes, changes in the habits of consumers etc.

4. Expiration of legal rights - When the use of an asset is governed by the time-bound arrangement, the value of such assets may decrease with the passage of time.